Spotlight on the 'Con' in Consumer Confidence: Confidence Improves Hooray!

By: Mike Shedlock | Wed, Jan 13, 2016
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Confidence Improves Hooray!

The consumer conference board says Consumer Confidence Index Improves in December.

The Conference Board Consumer Confidence Index® now stands at 96.5, up from 92.6 in November.

How did the board determine confidence was up?

"The Consumer Confidence Survey uses an address-based mail sample design. The CCS mailing is scheduled so that the questionnaires reach sample households on or about the first of each month. The targeted responding sample size -- approximately 3,000 completed questionnaires -- has remained essentially unchanged throughout the history of the CCI."


Deep Meaning

Amazingly, a mail sample of 3,000 is sufficient to determine the confidence of the entire nation. You can buy the data if you want. I'll take a pass.

The Fed would have you believe consumer confidence numbers have some deep meaning. Many others believe confidence is a leading indicator of spending which makes confidence a leading indicator of the economy.

Bloomberg states "Consumer sentiment is directly related to the strength of consumer spending."


Yellen's Confidence

In a December speech The Economic Outlook and Monetary Policy Fed Chair Janet Yellen commented on "confidence" (both consumer confidence and hers) several times.


Consumer Board Confidence Chart

Given that confidence is purportedly so strong, inquiring minds may wish to see the numbers in graphical form.

Here's a nice chart from the Advisor Perspectives report Consumer Confidence Improved in December.

Conferance Board Consumer Confidence Index


Take Aways


Gallup Economic Confidence

Inquiring minds are no doubt interested in other confidence measures. The Gallup Economic Confidence Index is one such measure.

Gallup Economic Confidence

Gallup's Economic Confidence Index is the average of two components: how Americans rate the current economy and whether they feel the economy is getting better or getting worse. The index has a theoretical maximum of +100, if all Americans rate the economy as excellent or good and improving; and a theoretical minimum of -100, if all Americans rate the economy as poor and getting worse.

The Gallup Economic Confidence Index hit a multi-year high of +7 about a year ago. It is now at -11. Interestingly, the index turndown happens to match the turndown in manufacturing and the slowdown in US GDP.


Consumer Spending Expectations

Rather than survey consumers on how confident they are, why not survey them on how much they intend to spend?

Actually, the New York Fed does just that.

Please consider One-Year Ahead Household Spending Growth Expectations.

Consumer Spending Expectations


Spotlight on the "Con" in Consumer Confidence

Fancy that. Consumers said they would spend less and they did. The timing corresponds to Gallup. Timing also corresponds to the manufacturing recession.

Rather than believe its own direct survey on spending, the Fed puts its faith in indirect measures of confidence and its own unjustified beliefs.

 


 

Mike Shedlock

Author: Mike Shedlock

Mike Shedlock / Mish
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Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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